Frequently Asked Questions

Albert Einstein dies and goes to the pearly gates where he's told he'll have to share a room with four others. When he meets them, the first says,"I have an IQ of 190."

"That's great," says Einstein. "We'll be able to talk about higher mathematics."

"I have an IQ of 150," says the second room-mate.

"You beauty," says Einstein. "We will be able to talk about particle physics."

"I have an IQ of 100," says the third.

"Splendid," says Einstein. "We can discuss the latest movies."

The last room-mate introduces himself: "Sorry, but my IQ is only 80."

Einstein smiles and asks: "So where do you think interest rates are going?"

On 6th April the RBA increased the cash rate by 25 basis points, not unexpectedly. The Big 4 Banks all increased their lending rate by 0.25%, no more no less which to some was surprising! The NAB's variable rate went to 6.99%, considerably lower than that offered by the other three.

The question is what does the future hold for interest rates? The Australian Chamber of Commerce has good reason to complain that the RBA's use of monetary policy to dampen the inflationary threat of the renewed commodities boom has seen it acting far too harshly. There is ample evidence of a two-speed economy: on the one hand there's the commodities boom; on the other is the "real" economy. The Australian Consumer Group monthly services sector index has suffered a third consecutive contraction: services such as the all-important retail sector (and accounting for that matter) have been held back by household expectations of higher interest rates. Construction, retail, wholesale and manufacturing aren't doing well at all and they are the major employers in Australia. Sure, mining is doing well and as RBA Governor, Glenn Stevens said on Tuesday, Asian export markets are "contributing to pressure on prices for raw materials" and "Australia's terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector"......BUT mining accounts for less than 2 percent of employment in Australia!

This all begs the question whether the rest of us will suffer as the RBA tries to keep a lid on the possibility of a spending frenzy from a few! Certainly the Australian Chamber of Commerce and Australian Industry Group seem to think so. The credit crunch is squeezing commercial property, housing developers and small business.....AND household disposable income has fallen in real terms in the past year after an initial boost by Labor's stimulus package and consumer spending on household goods has been flat since 2007. Witness the heavy discounting going on!!!

Stevens has pointed to "the market for established dwellings (being) still chracterised by considerable bouyancy". Fair enough. In Sydney and Melbourne on the Easter weekend auction clearances were over 70%, phenomenal. But it was recently announced that there is a shortfall in those cities of a 1,000 available rental properties for people wanting rental accommodation against the backdrop of a squeezed contruction sector. As claimed by the Australian Chamber of Commerce, there appears to be a two-speed economy operating in Australia and we can only hope that Stevens addresses the problems of the services sector stuck in low gear by leaving interest rates alone for a period. At worst, one would think that he might indulge in one more hike from the current 4.25% to 4.50% which would bring the rate into line with the average over the last (very successful) decade. That would mean 6 rate hikes in a few months, if he does so!

BOB LAMONT>>>>>>>>>>>>>>>>>>>>>

CPBMAC Finance Solutions can now offer standard variable loans at 5.99%. Repeat, 5.99%.

This is around 20-25 basis points less than the cheapest of the banks!!!
Bob Lamont >>>>>>>

On Tuesday, 2nd March, head honcho at the Reserve Bank, Glen Stevens, increased the official cash rate by 25 basis points to 4 percent. The important to come from his announcement was the board's belief that not only has Australia avoided a recession of any perceptible depth but the world is just about out of the woods and we'll see significant growth in the next couple of years. In fact, Stevens revised the Bank's projections for growth here in Oz upwards to around 4%. The problem with this, assuming the board's view is accurate, is that economic growth translates to the threat of inflation and the threat of inflation translates to more monetary tightening...yep increased interest rates. The natural level for the cash rate is 5-6% so I reckon there is every chance of 4-6 more 25 basis point rises at least over the next 1.5 to 2 years; but if there is a sudden spike in inflation (watch for union pushed wage increases, particularly in the mining sector!!) then the increases could get a bit of a gallop up! >>>> Bob Lamont

I was speaking with Anre Grimaux, editor of the "Caboolture Shire Herald" on Thursday last and he said that business conditions in the region have been particularly grim in the past two weeks. I thought of becoming all-academic and telling you why but a little birdie reminded me of a 50's cartoon. The words went something like this:"Don't tell me why I'm sick, Doc. Just tell me how to get better."

The bottom line is that business has no control over what is happening to consumer sentiment. Consumers are keeping their money and credit cards firmly ensconced in their wallets because the Reserve Bank is determined to dampen the effect on growth of the government's stimulatory spending and the resources boom, by upping interest rates.

What small business should be doing is looking for a match between what they've got to sell and what their customers are willing to buy. Sounds simple, doesn't it, but my experience is that it seldom happens.

A few years ago, that well-known icon of fast food, McDonalds, was in all sorts of strife in the US: sales had tanked and the share price was in free fall. What didn't help was that one punter purposely ate nothing but Maccas, put on a huge amount of weight and developed high cholesterol and blood sugar, all recorded for a documentary. Today, Maccas is stronger than ever: they offer healthy alternatives and some of their products now have the tick from the Heart Foundation and the seal of approval from Weight Watchers.

The message for small business is there. McDonalds did not change their branding one bit - the golden arch is still here, there and everywhere as is Ronald McDonald. What they did was survey their regular patrons and others to discover what people actually wanted from a fast food outlet and what leisure trends had passed Maccas by in their strict adherence to burger type meals. The results of the survey are there for all to see: healthy choices and McCafe!

There are two lessons here: survey your customers and don't change your brand which you've spent valuable time and money establishing. By this I mean, if you are David Jones or Myer, don't become Crazy Clarks overnight.

Conventional wisdom is that 50% of your sales will be to existing customers, 25% to people referred by existing customers and 25% to people attracted to your advertising.So what you should now be doing in this lull is surveying your existing customers to see whether they can offer an opinion as to how you can improve and whether they are willing to provide you with a testimonial - and REWARD them for their cooperation.

Why a testimonial? Simple, a testimonial is the next best thing to a referral. Use them in your marketing and advertising and your sales are sure to leap ahead of those of your competitors.

What reward? The classic reward is a discount voucher. What you are giving away may well be part of the profit you never had. Why a discount voucher? Simply because all you are giving away is some of your margin! If you give away somebody else's product, you are giving away something whose value is loaded with their margin. A tip though - limit the time they have to use the voucher. In times as tough as these, make the timeframe fairly short.

What sort of survey? Your survey should ask what we eggheads call quantitative and qualitative questions. The first begs yes/no answers or a ranking on a scale of 1-5 or poor-excellent. The second asks for a considered, written piece of advice or comment and is often more valuable.

To hark back to our 17th century thinker: the key is knowledge. If you are armed with the knowledge gained by your survey, you can tweak your business and your marketing and advertising to meet your market's needs and wants because you'll know what they are. You're no longer guessing and running about in a panic like a chook with its head off.

As Nike says.....Just Do It!

IF YOU WANT HELP IN CONSTRUCTING YOUR SURVEY MAKE AN APPOINTMENT ON 1300 450 810.........IT'S A FREE OFFER UNTIL 31 JULY!!!!

>>>>>>>>>>BOB LAMONT 18 June 2010

As we come into yet another long weekend that will eat into productivity, I thought I'd look briefly at 3 things:-

(1) At 5.2%, the unemployment rate has dropped to within 20 basis points of what the RBA considers to be the natural rate of 5.%. There is a very real danger that the economy will overheat and there will be a breakout of wage demands. The Rudd government's "return to the past" industrial relations policy will probably exacerbate the problem and the RBA will be forced to tighten monetary policy to settle things down. That means more interest rate rises. As luck would have it, the economy grew only 0.4% last month, within the RBA's acceptable range. So we might have some relief over the coming couple of months.

(2)I recently attended a talk by celebrated marketing expert Peter Capp. He was great although much of what he had to say was a rehash of stuff I've heard before - and have actually written about. He used lots of statistics by survey groups like AC Neilsen. Two are well worth passing on. He used a stylised graph to show how consumer sentiment has changed in favour of "shopping local": inner city shopping is on the nose with consumers and big shopping centres are on their way out too. Where the growth is is local shopping where parking is readily available, the shops are convenient, there's a shared sentiment of being part of a community and after-sales service is easier to get. Up 15% in fact! Woollies recognises the trend; here's betting that there's a Woollies within 5 kms of where you live.

(3) This statistic astounded me! Less than three percent of small businesses have any sort of of a business plan. He knew I was an accountant and asked me how many of my clients had a plan and I baldly lied: 50% I told him knowing that no matter how many times I've told people how essential it is to plan in business, they just shake their heads in a not-again-sort-of-way and ignore me. If you want to mend your ways for the new financial year - and you bloody well should - we have a business plan template we can email you for FREE!

The main gift that Tuesday's Budget offered to small businesses like yours and mine was a bright & rosy economic future for Australia.

Malcolm Turnbull was probably right when he criticised the Rudd Government for hanging in with the economic stimulus package too long and undoubtedly, the administration of the rollouts was an absolute disaster.

But the major role of Government is to take a macro view of the economy and install a fiscal policy that works for the goood of the country. And the Rudd Government has done that according to Treasury: the highest point we will hit in net Goovernment debt is just 6.1% of Gross Domestic Product (GDP), the deficit is 35% down on forecasts made in the 2009 Budget and the Budget will return to surplus in 3 years, three years ahead of projections.

Not only that, but during the global financial meltdown, the stimulus package saw the economy grow by 1.4% against potential negative growth of 0.7% and the creation of 225,0000 new jobs. Projected unemployment of 8.0% never materialised; unemployment peaked at 5.25% and is expected to trend downwards to 4.75% within 2 years.

We are the envy of the Western world and it's not hard to see why. Britain is a basket case and the new Tory-Liberal Democrat coalition is talking up big on severe belt tightening. The US threw money at the meltdown with some success and moved to regulate their financial markets but they still face many years of hundreds of billion dollar deficits. Greece where they've had 10 years of corrupt, inept Socialist Government has been bailed out by the International Monetary Fund (IMF) and European Community to the tune of 750 million euros (>$1 trillion) and faces a recurring interest bill alone of nearly 30% of its current GDP combined with virulent cvil disodeience by overpaid, underperformed public servants.

Other good news from the Budget papers is that Treasury reckons our economy will grow around 3% on average in coming years but that inflation will be 2.5%, midway in the 2-3 percent band desired by the Reserve Bank. The RBA disagrees, thus its obsession with raising interest rates 6 times in 8 months! Only time will tell which gaggle of economists is on the button of course.

But the bad news is that Treasury reckons that against falling unemployment, wages will increase by around 4% per annum. And economists in various think tanks around the place reckon skilled employees are looking around to change jobs, so those key staff you kept on during the tough times might just be thinking of giving you short shrift.

The only "special" giveaways to small business happened last Sunday week with the release of Swan's response to the Henry Review: immediate write-off of assets costing up to $5000, 30% depreciation rate for all assets not buildings, and a drop to 28% corporate tax rate 3 years ahead of the big boys.

But there might also be something in the small print in the Budget. The Government is going to encourage savings in interest bearing securities by making the first $1000 tax free. And it is also going to encourage the issuing of corporate bonds which along with government bonds, will create an alternative to depositing funds with the Big 4 Banks: it will allow smaller lenders access to funding that is an alternative to going offshore. It also seems likely that the Government will allow the Australian Stock Exchange (ASX) to trade in these bonds, ctreating new, attractive opportunities to investors who are overwiight in equities. The Government is well aware that the Big 4 Banks have put a tight squeeze on business borrowing and may be leading the way out. Of course, a changed lending landscape won't materialise overnight unfortunately.

An important ingredient in the Budget is the 40% super-profits tax on miners. Miners have been kicking up a stink but the Rudd Government appears to have no ideas of entertaining a back-flip on this one. One of the complaints of the miners has to do with the Government's definition of "super-profits"...UNDERSTANDABLY!

"Super-profits" are profits greater than the prevailing bond rate, currently about 6 percent. As my business clients know I encourage an EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) of above 30% and a net profit in the twenties if possible. That's a bloody side more than the going bond rate!!

Nevertheless, Traeasury says that all the concessions to business and to employees (eg, the lower corporate tax rate & increased super contributions) are immutably tied to the mining super-profits tax and if the Government gives away to pressure from miners then the other side of the ledger will be changed, hitting the welfare of all Australians. Therein lie the politics!!!!

BOB LAMONT 12 May 2010 >>>>>>>>>>>>

Great sadness for Bill Adams and family, Wayne, Dean, Bubba and Shelly and their kids. On Thursday 16 March, I got an early call from Nick, Bill's right hand man at Bill Adams Tiling and great mate. He had tragic news: Sandy Adams, Bill's wife of 48 years had died suddenly during the night.

Sandy was one of the most beautiful people I've ever had the pleasure of being able to call a friend and my wife who was something of a soulmate of Sandy's and I will miss her wicked sense of humour. Too young!

As a mark of respect for Sandy, Bill and the family, the CPBMAC office will be closed on 24 March 2010. Those of us who knew her will be attending her funeral at the Albany Creek Crematorium at 10 am.
Bob Lamont>>>>>>

The PM, Kevin Rudd, recently admitted that he hadn't read the Henry Review of the "roots and branches" tax system. Rudd had himself commissioned the 1,000 page review which was 18 months in the making. He claimed that he was too busy playing Don Quixote in "fixing" the hospital system to devote a few nights' reading to the review and has demurred to the Treasurer, fellow Nambour boy and certainly no friend of the PM, Swan, to out before the May Budget. This only under pressure from Swan and other Cabinet members who are concerned that Rudd's earler refusal to let the review see the light of day until later in an election year was, to say the least, ill-advised. Bob Lamont 18th March 2010>>>>>>>>

The Australian reported some interesting stats about Self Managed Super Funds on 11th March 2010. "A survey of SMSF investors who have term deposits linked to their funds found that 34 percent held more than half their portfolios in cash, while 33 percent said their allocation was between 25 and 50 percent."

The survey was conducted by U Bank (subsidiary of the NAB) and found that 66 percent blamed the GFC (Global Financial Crisis) for their conservatiism, 75% said they chose to manage their own super to gain "control", a significant percentage said they swapped from managed super funds because of fees and poor returns and 95 percent said they would not be switching back. It's probably a shame that these people missed out on the recovery-driven rally of the stockmarket, but such is the cost of security! There are reportedly about 600,000 SMSF's in Australia.

Cash accounting is the recording of income and expenses as THEY COME IN OR GO OUT. Accruals accounting is the counting of income and expenses when INVOICES ARE ISSUED OR RECEIVED. (Sometimes, you will receive a number of invoices from a supplier in a given month, then a statement at the end of the month. You should check that the invoices and statement match up but accrue only the statement.)

This varies from business type to type. For example, accountancy practices, medical practices and legal practices are most often bought and sold on a multiple of fees.

Pharmacies are usually bought and sold on a Return on Investment (ROI) factor – the last time I looked it was 17% in metropolitan areas and 20% in provincial areas and the turnover and prices of pharmacies are pretty much controlled by the pharmaceutical product suppliers who often arrange and guarantee loans in order to hopefully “tie” pharmacies to them. Other businesses are increasingly being sold on an ROI basis, which is much better than in the “olden days” when they sold for the aggregate of net profit, fixtures, fittings, plant & equipment & stock at value.

Just note that a valuation based on ROI is not inclusive of the value of stock. Also be aware that if you are buying or selling a business it is a potentially complex matter, taking into account things like leases and capital gains tax, the application of which varies from entity to entity and person to person depending on factors such as percentage of ownership and age. Be very careful, get expert advice whether buying or selling!
 

"It's really a back-handed tax grab," is the view expressed by tax expert Adrian Rafferty of Accountants Rus.

In its response to the much criticised Henry Review, the Rudd Government promised that from 2012, taxpayers will be able to simply sign off on a tax return generated by the ATO. The return will make a standard deduction claim of $500, up from the current $300.

Mr Rafferty's jibe is in response to research by the "Australian" newspaper (19/5/10). According to the ATO the average tax deduction claimed by an individual taxpayer is $3,311 - a helluva lot more than the $500 automatic deduction mooted for 2012 and $1,000 automatic deduction mooted for 2013.

In fact, by signing off on these ATO prepared returns and not using an expert tax agent, "the average person could be costing themselves as much as $1,000 which is a lot of money," says Rafferty.

BOB LAMONT>>>>>>>>>>>>>>>>>>>>>>>>

The ATO's agressive stance has again been thwarted in the High Court. On 30th March the High Court unanimously ruled that trustees of discretionary trusts (often called family trusts) may treat net capital gain as income if so allowed by the wording of the trust deed.This brought certainty into a situation after the ATO earlier had muddied things in the Federal, then Full Federal Court, by successfully arguing that net capital gain was distinct from other income, no matter what the trust deed said. The High Court judgement brought the treatment of net capital gain in trusts into line with that of companies where it is defined as "statutory income". The judgement also re-inforced the longstanding view of practitioners (including CPBMAC!) that a trust beneficiary should only be taxed on their proportionate share of the income in a trust. Bob Lamont 1/4/10 >>>>>>>>

The ATO has taken another hit in its aggressive policy of making tax law on the run, then committing mega dollars in legal fees to try to ram home the specious position they have taken. Dollars belonging to you and me, in this case spent on no less than four barristers for themselves and five barristers for the defendant, BHP. On 17 March, BHP defeated an appeal to the Full Court of the Federal Court by the ATO attempting to overturn a judgement in the Federal Court last year. The three judges unanimously ruled that it was fair and reasonable that BHP Finance write off around $2.2 billion in bad debts incurred in failed businesses. As one judge said, had the ATO won, it "would place business in this country....in a tortuous straightjacket."

Of course the question that begs answering is this: Is it fair that ordinary taxpayers in this country have to wait to ride the coat tails of big business who can afford to fight the ATO's succession of aggressive, anti-business and specious tax rulings made on the run without regard for the law as it is writ? Bob Lamont >>>>

PM Rudd's great "roots and branches" revamping of the tax system has stalled. The 1000 page Henry Review was delivered to the PM on Xmas eve and still hasn't seen the light of day depsite just about everybody who can breathe in this country imploring Rudd to come clean. A few weeks ago it was mooted that the thing would see daylight in a couple of weeks. Didn't happen. Then there's those who think it might come just before the May Budget. David Uren, Economic Correspondent with THE AUSTRALIAN reckoned this on Monday 8th February: "When the review is eventually released, the government will act on only a few relatively minor areas, while either ruling out or pushing off into the never-never the vast majority of its recommendations....Labor insiders describe it as 1000 PAGES OF BAD IDEAS." Maybe its release will come later in the year after Rudd has sold his new health policy, wrestled the States into submission and regained the high ground over The Monk in an election year. Bob Lamont>>>>>>>>

Once you’ve paid for the deed of the fund (ours are prepared by Cleary Hoare solicitors and currently cost $1,023 inc GST), then what you will pay are the following:-

Yearly Levy to the ATO, currently $150.00

Accountancy Fees

These are paid to your accountants who will prepare financial statements and various other reports and prepare and lodge the tax return.

Audit Fees

These are paid to an accountant who is not in any way associated with the firm that prepared the financial statements, etc. The auditor’s job is to either certify the fund as compliant (having followed the rules) or lodge a Contravention Report, pointing out where and how rules were broken. The most commonly broken rule is the borrowing of money by the members. If a fund is declared non-compliant it will pay tax at the highest marginal rate on the value of its assets.

The level of both the accountancy fees and audit fees will depend on the size and complexity of the fund.

Whatever you do in life costs money. If you invest in a retail fund, industry fund or non-profit fund the costs are largely hidden. It still costs the investment manager to buy and sell shares, to buy and sell property, to pay staff, to pay rent, to pay accountants and auditors and so forth; the public funds (even those that say they don’t pay commissions) simply hide these costs in the detail. Really, what the perennial question is, is this…………Is the investment I make to run my own SMSF worth it?

At last count, there were 600,000 trustees in Australia who definitely think so! Why? Independence is the reason, the ability to make your own investment decisions, the availability of a plethora of investment options. It would be interesting to see how many of those SMSF’s out-performed the public funds in 2008!
 

Yes, no problems. You, of course, are expected to take every precaution to make sure your return is accurate and you take responsibility for the information therein.